SMEs say government should force banks to lend by Simon Carter, Director of Touch Financial on 09-Apr-2012

The UK’s SMEs feel that still not enough is being done by the banks to provide finance and that the Government should force banks to lend.

That was the feeling in a survey from Touch Financial that talked to over 300 small businesses throughout the UK about the state of their finances.

A resounding 92% felt that the Government needs to force the bank’s hand in lending matters, and 89% felt that still not enough was being done by the banks on their own.

The survey reiterated the recent media perception of banks not providing finances, as just under half (47%) had been turned down for a loan in the past 12 months and 70% knew another business that had been turned down for finances over the past year.

The reasons cited primarily focused on a lack of security, a poor credit rating, or the considered risk of a particular sector, but the majority of banks either failed to give a reason or even – in one case – said that they were not lending at the moment.

The problem for SMEs is that, in many cases, the banks appear to be providing the wrong kind of financial solution, according to Simon Carter of Touch Financial. He says that too often banks will turn down a loan or overdraft request without investigating possible alternatives.

"Of those businesses we spoke to, the majority who’d been turned down for finances had requested a loan or overdraft. This isn’t the only means of providing small businesses with working capital, but it does seem to be the only option the banks are seen to promote."

This was certainly borne out by one respondent who said that the bank said that they had 'insufficient assets' for a loan, despite securing a loan with the same bank on three previous occasions and never missing a repayment.

With 76% of those businesses quizzed needing to approach banks for financing within the last year alone, Government intervention could be one answer, but there are other ways of securing finances, as Simon adds, "Invoice financing and asset based lending provides businesses with a source of funding that utilises assets that are secure to the banks – their sales ledgers."

"However SMEs are not always advised that they can free up cashflow via these means. Government and banks need to work together to not only free up finances, but to educate advisors and SMEs alike."

This sentiment was also backed up by Professor Russell Griggs, Chairman of the CBI’s Small Business Council, "The smallest companies are still genuinely less likely to have overdraft and loan applications approved than larger businesses," he said recently. "This is a key reason why we need to work closer with businesses and banks to make sure they can get the finances that are available to them."

With nearly 81% of businesses questioned being worried about the availability of commercial finances in 2011, the education in alternative financing needs to start soon, as Simon concludes, "Banks are open for business and they need to get this message to the SMEs."

"Financing is there, they just have to know where to look."

For more information, visit: www.touchfinancial.co.uk.

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